March 21, 2017 / 8:46 PM / 4 months ago

CORRECTED-UPDATE 1-Fonterra profit rises but guidance cut on forecast volatility

3 Min Read

(Fixes forecast earnings per share to 45 to 55 cents per share, not 45 to 50 cents, in para 2)

WELLINGTON, March 22 (Reuters) - New Zealand dairy giant Fonterra reported a 2.2 percent rise in half-year profit on Wednesday, lifted by earnings gains for its high-value consumer products.

But the world's largest world's largest dairy exporter cut its guidance for the full year because of dairy market volatility, reducing forecast earnings per share to 45 to 55 cents per share, from a range of 50 to 60 cents.

"The impact of more volatility in product stream returns in our ingredients business, some tightening of margins in the coming months, and the potential for extra milk in the autumn could result in some pressure on our earnings in the second half," chairman John Wilson said in a statement.

A recovery in global dairy prices has been welcome relief for Fonterra's farmer-shareholders since prices plummeted in 2015. However, the turnaround has been bumpy, and the rise has also eaten into margins by pushing up ingredient costs.

Fonterra said it was also hit in the first half by poor spring weather, which dampened New Zealand milk collection. Cost cutting, improved weather since and rising consumer product sales supported the profit line.

Net profit after tax for the six months to Jan. 31 rose to NZ$418 million ($294 million), compared with NZ$409 million a year ago.

A 30 percent rise in earnings for Fonterra's consumer and food service showed benefits from its stragegy of expanding from milk powder wholesaling to products from cheese to yogurt sold under brands such as Anchor, Anlene and Fresh n' Fruity.

Sales volumes for China and Hong Kong rose by a third, boosting earnings for that region 41 percent to NZ$96 million.

"We are looking to channel ... our milk into products that create the most value for our farmers as well as optimising the farmgate milk price," Chief Executive Officer Theo Spierings said in a statement.

Fonterra held its forecast farmgate price to NZ$6 per kilogram. It announced an interim dividend of 20 New Zealand cents, the same as last year.

$1 = 1.4198 New Zealand dollars Reporting by Tom Westbrook; Editing by Ruth Pitchford

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